How to Avoid Five Common Mistakes in Market Segmentation

It's a Powerful Tool, but Only If Used Correctly

Every year, companies around the world spend more than $6 billion conducting market research. Upon receiving the results of these studies, marketers retreat to conference rooms where they pore over the data and attempt to derive value from what is usually a very significant investment.

One of the most common outcomes of this process is a fantastic "new" way to segment customers. Staffers congratulate themselves on the brilliant insights the new pie charts yield, and their managers trumpet their innovative approach to conference rooms full of irritated executives, skeptical sales staff and befuddled engineers. What went wrong? Here are some of the usual suspects:

Segment names are not intuitive
Ensure the name you select for each segment is intuitive for all the users of the marketing strategy. It is best to avoid names that are too jocular or, at the other extreme, too academic. It is far better for a segment name to be intuitive and accurate than snappy and creative. For example, a car buyer that is image-conscious is not necessarily a "fashionista" and a stay-at-home mother is not necessarily a "soccer mom." Both of those names are laden with potentially unintended cultural interpretations and are also likely to not be well-understood by colleagues overseas. A related point here is to be respectful in how you describe customers. Some might rationalize that the information is for internal use only, but serving customers well begins by driving a respect for them and their needs into the organization.

Segment definitions are too long
Nuanced subtleties are quickly lost on most audiences. If the definition is longer than a few bullet points related to actionable intelligence for the audience, go back and simplify. One approach is to create subsegments, but the litmus test here is really whether the finer gradation of data really is actionable for the end user, be they engineers, sales staff or other marketers.

Segmentation changes too frequently
Countless segments can be hewn from a database—and there is a tremendous temptation for marketing staff to do so. Analysis of this kind can be extremely valuable. However, if all of an organization's marketing analysis is ad hoc and segments are not defined consistently over time, it becomes difficult for marketing, sales and product-development staff to develop a common understanding of the market. Consistent segmentation helps everyone in the company discuss the market with a common vocabulary and recognize emerging trends. What does "utility user" mean to you? Are you sure it means the same thing to the engineer updating your flagship product? Effective segmentation strategies require a disciplined consistency as well as simplicity.

Segment relevance is not well communicated
In this case, the problem is likely that the presentation was not tailored to the audience. Engineers tend to relate well to examples of features the different segments want. The sales staff is focused on behavioral dimensions, such as price sensitivity. Ideally, the segment definition encompasses both. Resist the temptation to use the exact same summary presentation for all stakeholders. And take the time to integrate meaningful examples for each audience.

The strategy does not include a plan to engage stakeholders
You will not get the entire company convinced by your research via a single teleconference or road show. A sustained effort needs to take place that involves marketing, pricing, sales and product development. Articulating the segmentation strategy clearly to advertising agencies will result in a vastly superior campaign than merely dumping a product in front of them and haggling over a budget.

Market segmentation is a little bit like driving a car, in that everyone believes he is good at it. Modern IT systems make it deceptively easy to pour reams of data into statistical programs and virtually any intern (or high priced consultant) can craft a beautiful PowerPoint presentation filled with animated pie charts. The objective of market research is to focus your company on the best opportunities. Driving that targeted segment focus successfully demands the message be intuitive, simple, consistent and relevant.

Beyond that , it requires a detailed action plan to engage your peers in different disciplines—and a dogged determination to see it through.

ABOUT THE AUTHOR

Harry Kobrak is a product strategy manager at Caterpillar in Kobe, Japan. He has held positions in sales, marketing, pricing, finance and product development.